Financial Statement Presentation Phase B
The Board continued its deliberations on various issues to be addressed in the initial discussion document of this project.
Classified statement of financial position
The Board reaffirmed by majority vote its tentative decision that an entity would not be required to present a classified statement of financial position when a presentation of assets and liabilities in order of liquidity provides information that is reliable and is more relevant. The Board noted that this decision will require judgement and that the initial discussion document should include examples to illustrate circumstances in which a statement of financial position presented in order of liquidity may be more relevant.
Capital management disclosures
The Board discussed the capital management disclosures currently required in paragraphs 134 to 136 of IAS 1 (revised 2007) Presentation of Financial Statements.
The staff pointed out that the term 'capital' may include operating items and suggest to change paragraph 135(a)(i) of IAS 1 to something like "A description of what is managed as capital (including as appropriate, operating, financing and equity items)". Some Board members stated that in current IFRSs, the term 'capital' relates to long-term financing and equity items and that the disclosures under paragraphs 134 to 136 of IAS 1 should focus on such items.
The Board decided not to amend the existing guidance in this respect.
Netting in the statement of cash flows
At the March 2007 meeting, the Board tentatively decided to eliminate the concept of cash equivalents. Accordingly, the statement of cash flows would present flows related to cash alone; items currently classified as cash equivalents would be classified in the same manner as other short-term investments.
At this meeting, the Board discussed whether net or gross amounts of cash receipts and payments related to items currently classified as cash equivalents should be presented on the statement of cash flows.
At previous meetings the IASB and the FASB had tentatively agreed a 'netting principle' stating that entities should prepare financial statements using a gross presentation except when (a) net presentation is required or permitted by the authoritative accounting literature or (b) there is no incremental value in the additional information provided in a gross presentation - that is - the net amount provides all of the information that is necessary.
The Board tentatively decided to eliminate the existing general netting guidance in paragraph 22 of IAS 7 Cash Flow Statements, as this would be covered by the general netting principle. The current specific netting guidance in paragraph 24 of IAS 7 should be retained to provide additional application guidance.
Based on these decisions, the guidance regarding netting in the statement of cash flows would be something like:
Cash receipts and payments should not be offset (presented net) in the statement of cash flows unless there is no incremental value in the additional information provided in a gross presentation - that is, there is no benefit in a user of the financial statements knowing the two amounts; the net amount provides all of the information that is necessary.
Net presentation of cash flows is permitted in the following circumstances for financial institutions:
- Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date
- The placement of deposits with and withdrawal of deposits from other financial institutions
- Cash advances and loans made to customers and the repayment of those advances and loans.
Application of the cohesiveness principle
At previous meetings, the IASB and the FASB agreed that the cohesiveness principle should be the governing principle in the financial statement presentation project.
Under the cohesiveness principle, assets and liabilities are classified into a functional category (operating, investing, financing, and the like). The classification in the statement of financial position dictates the treatment in the other statements. Accordingly, the income and expense (including gains and losses) associated with those assets and liabilities are presented in the corresponding category in the statement of comprehensive income, and the cash flows associated with those assets and liabilities are presented in the corresponding category in the statement of cash flows.
Classification and presentation of dividends payable
The Board discussed whether the corresponding dividend payment should be classified in the financing or equity section of the statement of cash flows. Under the current working principles, a liability for dividends payable is likely to be classified in the financing category. The cohesiveness principle would require classify the dividend payment in the financing section.
However, because dividend payments normally relate to transactions with owners in their capacity as owners, a classification in the equity section of the statement of cash flows may be more appropriate.
The Board decided that dividends payable and the related changes should be classified in the financing section.
Classification and presentation of foreign currency translation adjustments (FCTAs)
FCTAs relating to consolidated subsidiaries and proportionately consolidated joint ventures
The Board discussed the following alternatives:
Allocate FCTAs to the categories in which assets and liabilities of the subsidiaries and joint ventures are classified in the statement of financial position.
Do not allocate FCTAs but classify them in:
- (a) the operating category within the business section
- (b) a new FCTAs section.
There seemed to be consensus that alternative 1 would not be practicable for all entities. One Board member suggested to give entities the choice to apply alternative 1.
The Board agreed to include alternative 2(b) as the preferred view in the initial discussion document. However, both alternatives should be explored and constituents should explicitly be asked for their views.
FCTAs relating to equity method investments
The Board considered the following alternatives:
Classify FCTAs in the category in which the equity method investment is classified in the statement of financial position.
Classify FCTAs in a new FCTAs section.
The discussion focused on the question whether proportionally consolidated joint ventures and equity method joint ventures should be treated differently (which would be the case under alternative 1).
Finally, by majority vote the Board decided in favour of alternative 1. Board members in favour noted that this alternative is in compliance with the governing cohesiveness principle and that exceptions to this principle should be kept to a minimum.
For the purpose of this project, basket transactions are defined as single transactions that involve multiple assets (or a combination of assets and liabilities) that would be classified in more than one category under the proposed presentation format.
The Board discussed whether the effects of basket transactions (revenues, expenses, and gains and losses in the statement of comprehensive income, and cash flows in the statement of cash flows) should be allocated to multiple categories.
The discussion focused mainly on the presentation of basket transactions in the statement of cash flows. Some Board members raised the concern that such an allocation may be arbitrary and/or burdensome and asked the staff whether an allocation method has been developed. The staff responded that it was seeking the Board's general view on allocation before continuing to develop an allocation method.
The Board tentatively decided to include the allocation requirement in the initial discussion document and directed the staff to develop an allocation method. Some Board members in favour of allocation noted that their views are subject to the development of a practicable allocation method.